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Switching Costs And The Foreign Firm'S Entry

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  • TORU KIKUCHI

Abstract

In this paper we consider a two-period model of market entry with homogeneous products and switching costs. It is shown that the pro-competitive effect of a foreign firm's entry (i.e. unilateral trade liberalization) emerges before the entry. Also, conditions that are conducive to a competitive environment in the second period are shown to yield a less competitive outcome in the first period. That is, when the marginal cost of the foreign entrant is relatively low, the first-period output of a domestic monopolist is relatively low as well. Copyright © 2009 The Author. Journal compilation © 2009 Blackwell Publishing Ltd and The University of Manchester.

Suggested Citation

  • Toru Kikuchi, 2009. "Switching Costs And The Foreign Firm'S Entry," Manchester School, University of Manchester, vol. 77(3), pages 366-372, June.
  • Handle: RePEc:bla:manchs:v:77:y:2009:i:3:p:366-372
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    References listed on IDEAS

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    1. Paul Klemperer, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 375-394.
    2. Paul Klemperer, 1995. "Competition when Consumers have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Oxford University Press, vol. 62(4), pages 515-539.
    3. David R. Collie, 1996. "Gains and losses from unilateral free trade under oligopoly," Discussion Papers (REL - Recherches Economiques de Louvain) 1996024, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    4. To, Theodore, 1994. "Export subsidies and oligopoly with switching costs," Journal of International Economics, Elsevier, vol. 37(1-2), pages 97-110, August.
    5. Markusen, James R., 1981. "Trade and the gains from trade with imperfect competition," Journal of International Economics, Elsevier, vol. 11(4), pages 531-551, November.
    6. Paul Klemperer, 1987. "The Competitiveness of Markets with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 138-150, Spring.
    7. repec:ebl:ecbull:v:6:y:2007:i:6:p:1-7 is not listed on IDEAS
    8. Roger Clarke & David Collie, 2003. "Product differentiation and the gains from trade under Bertrand duopoly," Canadian Journal of Economics, Canadian Economics Association, vol. 36(3), pages 658-673, August.
    9. Toru Kikuchi, 2007. "Switching costs and the impact of trade liberalization," Economics Bulletin, AccessEcon, vol. 6(6), pages 1-7.
    10. Klemperer, Paul D, 1987. "Entry Deterrence in Markets with Consumer Switching Costs," Economic Journal, Royal Economic Society, vol. 97(388a), pages 99-117, Supplemen.
    11. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
    12. Collie, David & de Meza, David, 2003. "Comparative advantage and the pursuit of strategic trade policy," Economics Letters, Elsevier, vol. 81(2), pages 279-283, November.
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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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